MAKING THE NUMBERS WORK
The most important thing you can do is to conduct your research about the structure, the land, and the surrounding areas. This includes seeing if there are any new roads or construction planned, ensuring there aren’t any liens on the property, looking at comparable properties, and researching anything else that could affect the value of the property. If you’re just buying land, go over the deed with a fine-toothed comb. After you’ve accumulated sufficient information on all applicable factors, it’s time to decide whether it’s a wise investment. That said, remember that even with the most detailed research, things can change. Maybe the up-and-coming neighborhood takes an unexpected downward spiral, or maybe it up-and-comes more quickly than expected. Unless you’re psychic, there’s just no way to predict what will happen, so making the most well-educated decision you can is the best way to mitigate — but not eliminate — the risk. The most important part of running the numbers is calculating your Return on Investment (ROI) . Here’s how to do that: • Figure out the investment gain . This is the amount of money you’ll make before expenses. So, if you make $500 per month on your rental property, multiply it by 12 months a year, and your investment gain will be $6,000. • Add up all your operating expenses. This should include taxes, insurance, repair costs, and any other expenses you know or think you might have. If you pay $1,200 in taxes, $450 for insurance, and $900 in repairs, your total expenses would be $2,550. 24
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